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An experimental analysis of the effects of imperfect compliance on technology adoption

Abstract:
In this paper, we present the results of an experimental investigation on incentives to adopt advanced abatement technologies in the presence of imperfect compliance. We consider two policy scenarios to reduce emissions, namely pollution taxes and emission permits, as well as different combinations of the inspection probability and the fine for non-compliance, which can result in compliance/non-compliance scenarios. We review and qualify existing theoretical predictions in several ways, yet sanction the main results: allowing for imperfect compliance results in tax evasion, and reduced permit prices. In addition, it also reduces the adoption rate of advanced abatement technologies and, in consequence, increases aggregate emissions. Finally, all treatments for emission permits suffer from under-pricing and insufficient trading.
Keywords:
Environmental policy, Abatement Technology, Taxes, Permits, Auction, Monitoring, Non-compliance
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Lidia Vidal-Meliá got her Ph.D. at Universitat Jaume I under the supervision of Prof. Eva Camacho-Cuena and Prof. Miguel Ginés-Vilar. She holds an MSc degree in Economics from Universitat de València and a BA degree from Universitat Jaume I. Her thesis dissertation focuses on the interface between Experimental and Environmental Economics. More specifically, she focuses on the permits’ market for CO2 emissions and their implementation, with special emphasis on the reduction of emissions based on the firms’ investment in cleaner technologies.